Opinion
No. 3-91-279-CV.
June 23, 1993.
Appeal from the District Court of Travis County, 126th Judicial District, Joe Dibrell, J.
Reversed and rendered in part and affirmed in part.
James K. Rourke, Jr., Austin, for Devers Canal Rice Producers Ass'n, Inc.
Susan E. Potts and Frank M. Reilly, Davidson, Troilo Booth, Austin, for Trinity Water Reserve, Inc., d/b/a Devers Canal System.
Dan Morales, Atty. Gen., and Steven Baron, Asst. Atty. Gen., Austin, for Texas Water Com'n.
Edward Pickett, Pickett Pickett, Liberty, for Boyt Realty Co.
Before CARROLL, C.J., and ABOUSSIE and B.A. SMITH, JJ.
The Texas Water Commission ("the Commission") set rates for distribution of water for irrigation purposes from the Devers Canal System ("the Canal"), effective for 1990 and thereafter. The Canal is owned by Boyt Realty Company ("Boyt") and leased by Trinity Water Reserve, Inc. ("TWR"). The Commission and Devers Canal Rice Producers Association, Inc. ("the Association") assert on appeal that the lower court erred in ruling that the Commission lacked jurisdiction to set prospective rates for the years following 1990. TWR raises by cross-appeal multiple points of error regarding the court's affirmance of the Commission's order setting 1990 rates, claiming evidentiary, procedural, and constitutional violations. We reverse that portion of the district court's judgment concerning post-1990 rates and affirm the remainder of the judgment.
BACKGROUND
In 1990, TWR began leasing the Canal, a two-hundred-mile network of waterways flowing through Liberty, Chambers, and Jefferson Counties. TWR posted a schedule proposing contract rates for the year 1990 averaging $97 per acre for supplying water to neighboring land. Because the parties could not agree on a contract price, the Association, a group of customers in the Canal area, petitioned the Commission to review the reasonableness of TWR's proposed rates pursuant to chapters 11 and 12 of the Water Code. After hearing evidence on what expenses should be included in the rates, the Commission ordered that for 1990 TWR should charge $79.37 for water from the main canal and $84.37 for water from a relift station, the difference reflecting additional costs needed to pump the water from the main canal. It added a surcharge of $6.29 for 1990 to recoup expenses for the rate case and repairs made to a damaged flume. The Commission further ordered that the base rates for 1990 would continue in effect until the parties agreed upon a different rate or until the Commission set different rates in a future proceeding.
All further references to the Water Code are from Tex. Water Code Ann. (West 1988).
TWR and Boyt filed an action in the district court challenging the Commission's order. The trial court upheld the order regarding the 1990 rates but held the Commission's decision to extend these rates beyond 1990 exceeded its statutory authority under chapters 11 and 12 of the Water Code.
PROSPECTIVE RATEMAKING
Chapters 11 and 12 are the provisions of the Water Code dealing with "raw" water, which is usually used for irrigational purposes. These chapters provide the framework governing the rights of parties to use such water and the manner in which rates for the water's use are set.
TWR had proposed rates for only one year, 1990. It contends that the Commission is limited to reviewing the reasonableness of those rates and setting reasonable rates only for the time period of the proposed contract challenged by the Association in their petition. It contends the Commission must wait until the Association or another consumer challenges future proposed rates before setting rates for years following the contractual period at issue in this case. TWR notes chapters 11 and 12 of the Water Code give the Commission no express authority to set future rates.
To resolve this appeal, we must decide whether chapters 11 and 12 of the Water Code authorize the Commission to set prospective rates under these facts. Other regulatory agencies and the Commission itself, under various sections of the Water Code not in issue, have the express power to set rates beyond the immediate year during which an order takes effect. In several instances the Commission or its predecessor agency set rates effective for multiple years, but no party challenged this authority on appeal. See Knight v. Oldham, 210 S.W. 567 (Tex.Civ.App.-El Paso 1919, writ ref'd); Trinity River Auth. v. Texas Water Rights Comm'n, 481 S.W.2d 192 (Tex.Civ.App.-Austin 1972, writ ref'd n.r.e.); American Rio Grande Land Irrigation Co. v. Karle, 237 S.W. 358 (Tex.Civ.App.-Austin 1922, writ dism'd).
Chapter 13, for example, explicitly allows the Commission to set prospective rates for the sale of potable water. § 13.186.
The Legislature granted the Commission broad authority in this area: "The commission shall fix reasonable rates for the furnishing of raw or treated water for any purpose mentioned in Chapter 11 or 12 of this code." Water Code § 12.013 (emphasis added). Further, the Legislature impliedly intends an administrative agency to have the necessary powers to perform its required functions. Sexton v. Mount Olivet Cemetery Ass'n, 720 S.W.2d 129, 137 (Tex.App.-Austin 1986, writ ref'd n.r.e.).
We stated in Trinity River that "it is only after the proprietor of an irrigation system has set water rates that the customer may present a petition to the Commission invoking its jurisdiction." Trinity River, 481 S.W.2d at 195. Section 11.041 (a) outlines the requirements for the filing of the customer's petition. This statute provides an avenue for a party who has no contract for the use of raw water. The party is nonetheless entitled to the water if (1) the supplier has not contracted to sell this water to third persons and (2) the supplier refuses to contract with the party at a reasonable rate. LaCour v. Devers Canal Co., 319 S.W.2d 951, 953 (Tex.Civ.App.-Beaumont 1959, writ ref'd n.r.e.). There is no dispute that the initial petition filed by the Association complied with the requirements of section 11.041 (a). The question is whether, in a proceeding reviewing the petition, the Commission has the authority to set rates not only for the proposed contractual period but also to make them effective prospectively beyond this period.
Trinity River, unlike TWR suggests, does not hold that the Commission cannot set rates beyond the term provided by the proposed contract. This court there held that rates were subject to the Commission's jurisdiction but noted that water users must wait until their suppliers propose rates before petitioning the Commission under section 11.041 (a) of the Water Code. Trinity River, 481 S.W.2d at 195. We did not hold that a new petition was required to invoke the Commission's jurisdiction for every year following the period in dispute.
Section 11.038 (b) of the Water Code provides that if two parties cannot agree on a contract price, the supplier, if his water is not contracted to others, "shall furnish the water necessary for these purposes at reasonable and nondiscriminatory prices." Section 11.036 (b) further provides that "if any person uses the stored or conserved water without first entering into a contract . . . the user shall pay for the use at a rate determined by the commission to be just and reasonable." One court of appeals has noted that
[section] 11.036 [of the Water Code] does not mandatorily require a written contract to supply water. Nor does this section give to the supplier the power and prerogative to demand a written contract before supplying water. [I]f a contract cannot be agreed upon, then those owning or holding a possessory right or title to the land adjoining the canal or any of its parts, are entitled to water at just and reasonable rates. American Rio Grande Land Irrigation Co. v. Mercedes Plantation Co., 208 S.W. 904 (Tex.Comm'n ___ App. 1919, judgm't adopted).
Trinity Water Reserve, Inc., v. Evans, 829 S.W.2d 851, 859-61 (Tex.App.-Beaumont 1992, no writ). So long as TWR was not contractually committed to other third parties, the Association members had a statutory right under the Water Code to use water after 1990, the period of TWR's proposed contract, and pay reasonable rates for this water.
Here, the Commission's order stated that the approved rates "shall continue in effect unless and until the parties agree upon different rates or the Commission sets other rates in a future proceeding." The rates which had been set for 1990 were established as "just and reasonable" rates which would initially apply to post-1990 use of water. By its, order, the Commission also recognized the Association's right to use water in the future at reasonable rates, as long as TWR has not contracted all its water to other customers. However, the Commission made no attempt to override the negotiation-review procedures outlined in chapter 11 of the Water Code. The parties were free to contract with each other for different rates. The Commission's reference to a "future proceeding" recognized that the Association may file a petition under section 11.041 (a) to challenge the established rates; moreover, TWR may propose higher rates and cause the Association to challenge these rates by a new petition. The Commission had the authority to enforce the Association's statutory right to raw water at a reasonable rate so long as TWR made no other contractual commitments. See Water Code §§ 11.036 (b), 12.013 (a).
We interpret the Commission's order to allow TWR to propose new contractual rates, and thus potentially initiate a new proceeding, in order to prevent the order from establishing, in effect, indefinite maximum rates which TWR may charge. Nothing in the Water Code suggests the Commission has the power to mandate long-term rates on its own initiative. Further, TWR notes that raw water market prices are especially subject to change from year to year. This fact, which no party disputes, persuades us that the [Legislature did not impliedly grant the Commission such power, either.
The Commission suggests TWR also has the right to petition the Commission for review of post-1990 rates. Section 11.041 (a), of the Water Code details a customer's right of petition; the Code does not contain an express analogous right for the seller. Of course, the seller actually controls the process by proposing new rates. In any event, we need not decide the matter in this proceeding.
TWR suggests that the Commission might have had authority to set future rates had it used a different methodology to calculate post-1990 rates. This issue does to affect the jurisdictional question, which turns on the plain words of the statute and their ordinary meaning.
We hold that a customer may contest the rates proposed by a water supplier by filing a petition under section 11.041 (a) of the Water Code and invoking the Commission's jurisdiction to set reasonable rates. Once its jurisdiction is invoked, the Commission may set reasonable rates in the manner it did and is not restricted by the period of the proposed contract in dispute. The supplier, however, is not prevented from contracting with the petitioning customer or other customers in the future at any rate agreed upon by the contracting parties. The Association and TWR may thus enter into a new contract for future water rates if they find the Commission's rates unacceptable; if they cannot agree on a new price, the Commission retains the authority to review the reasonableness of its rates under a section 11.041 (a) proceeding.
We sustain the Commission's and the Association's point of error and turn to the multiple points of error raised on cross-appeal that attack the district court's judgment upholding the Commission's 1990 rates.
1990 RATES
Standards of Review
Section 19 (e) of the Texas Administrative Procedure and Texas Register Act (APTRA) sets out the grounds on which a party may seek to reverse an administrative order. TWR claims in several points of error that portions of the order are not reasonably supported by substantial evidence and are arbitrary and capricious, separate grounds under section 19 (e) of APTRA for judicial review. Id., (5), (6).
All further references to APTRA are from Tex.Rev.Civ.Stat.Ann. art. 6252-13a (West Supp. 1993).
In City of League City v. Texas Water Commission, 777 S.W.2d 802 (Tex.App.-Austin 1989, no writ), this Court summarized the substantial evidence test: (1) The findings, inferences, conclusions, and decisions of an agency are presumed to be supported by substantial evidence, and the burden is on the party contesting the order to prove otherwise; (2) in applying the test, the reviewing court is prohibited from substituting its judgment for that of the agency as to the weight of the evidence of questions committed to agency discretion; (3) substantial evidence is more than a scintilla, but the evidence in the record may preponderate against the decision of the agency and nonetheless amount to substantial evidence; (4) the true test is not whether the agency reached the correct conclusion, but whether some reasonable basis exists in the record for the action taken by the agency; and (5) the agency's action will be sustained if the evidence is such that reasonable mind could have reached the conclusion that the agency must have reached in order to justify its action. Id. at 805 (citing Texas Health Facilities Comm'n v. Charter Medical-Dallas, Inc., 665 S.W.2d 446, 452-53 (Tex. 1984)). Where evidence in the record will support either an affirmative or a negative finding, the agency order must be upheld. Any conflict in the evidence must be resolved in favor of the agency's decision. Lone Star Salt Water Disposal Co. v. Railroad Comm'n, 800 S.W.2d 924, 928 (Tex.App.-Austin 1990, no writ).
An agency's actions are generally considered arbitrary and capricious if they are not supported by substantial evidence. Charter — Medical, 665 S.W.2d at 454. Even if supported by substantial evidence, though, an agency action may be arbitrary and capricious (1) when the agency has denied the litigant due process, Lewis v. Metropolitan Savings Loan Association, 550 S.W.2d 11, 16 (Tex. 1977); (2) when the agency has totally failed to make findings of fact and instead based its decision on findings in another case, Railroad Commission v. Alamo Express, 308 S.W.2d 843, 846 (Tex. 1958); (3) when the agency has improperly based its decision on non-statutory criteria, Public Utility Commission v. South Plains Electric Cooperative, Inc., 635 S.W.2d 954, 957 (Tex.App.-Austin 1982, writ ref'd n.r.e.); or (4 when the agency has based its decision on legally irrelevant factors, or failed to consider legally relevant factors. Consumers Water, Inc. v. Public Util. Comm'n, 774 S.W.2d 719, 721 (Tex.App.-Austin 1989, no writ).
Future Rates
In TWR's first two points of error, it attacks the Commission's order as requiring "continuous" service "in perpetuity" to the Association. It claims this action was arbitrary and capricious, constituted an unlawful taking, and violated its right to contract. This issue has been addressed above in our treatment of the Commission's point of error.
TWR also asserts the district court erred in failing to hold the Commission had no jurisdiction to set future rates. As the district court actually found in TWR's favor, we overrule this contention; moreover, we have already addressed this issue in regard to the Commission's appeal.
The Commission's order acknowledges the Association's statutory right to receive water from the Canal in the future at reasonable rates. The order is not arbitrary; it recognizes the parties' right to agree to different rates in future years. The order does not interfere with TWR's right to contract; it remains free to enter into agreements with the Association or other customers, and at rates it may propose.
Further, the order does not unconstitutionally deprive TWR of property without compensation. So long as rates are reasonable, they easily meet constitutional muster. In Texas Water Rights Commission v. Wright, 464 S.W.2d 642 (Tex. 1971), the Texas Supreme Court upheld a statute that provided for cancellation of a water permit upon ten years of non-use. It pointed out that surface water belongs to the state, which may issue permits for the water's beneficial use. Id. at 647. The Commission may regulate the use of water owned by the state as long as it does so reasonably. TWR complains that the order requires it to service the Association in perpetuity, even though it may no longer have the statutory right to use the Canal's water in the future. The order, however, makes clear that only qualified customers have such a right.
Conclusion of Law 8 states:
The owners and/or lessee (if applicable) of the canal system are obligated under 11.036- 11.041 of the Texas Water Code to provide continuing service under terms and conditions that are just reasonable and nondiscriminatory to members of the [Association] and other customer farmers who meet the qualifications of Section 11.038 of the Texas Water Code.
The order then commands: "The owners and/or lessee (if applicable) of the canal system shall supply water through the Devers Canal System on a continuing basis to customer irrigators." It does not order TWR to supply the Association if its members no longer qualify under the Water Code.
TWR also asserts that no substantial evidence in the record supports the Commission's rates for post-1990 service. TWR fails to brief this point. We note that the Commission's order merely provides an initial rate found to be reasonable for 1990 but contemplates future negotiations and agency proceedings in later years. The Commission's order does not foreclose further review and rate-setting for future years. We overrule TWR's first and second points of error.
The 1986 Note
TWR's next three points of error attack the decision of the Commission to exclude from the rate calculation principal and interest payments on a 1986 note that Boyt owed the Trinity River Authority (TRA), a governmental unit. TWR asserts this action was (1) not based on substantial evidence, (2) arbitrary and capricious, (3) based on ad hoc rulemaking, (4) a retroactive decision, and (5) precluded by a previous order of the Commission. The decision TWR complains about was based on historical facts, apparently undisputed, that require some explanation.
TWR also asserts, but does not brief, that the action unlawfully deprived it of its property without compensation. As the state is broadly empowered to license the use of surface water, we do not see how setting conditions for this use in the form of ratemaking constitutes such a taking. See Wright, 464 S.W.2d at 647.
The Boyt family owned the Canal from the 1920's until 1969, when TRA purchased it by issuing revenue bonds to the Boyts. In 1986, TRA sold the Canal to Boyt Realty, a company consisting of many of the original bondholders, in return for the note at issue. Interest payments on the note and the bonds were equalized, and the two debts will have the same balloon payment at their end in 2009. The record reflects the Boyts have not canceled these reciprocal debts, possibly due to advantageous federal taxation treatment.
The Commission argues TWR has actually recovered the amount it seeks. The Commission included TWR's 1990 lease of the Canal from Boyt Realty in cost of service in Finding of Fact 33. The lease payment equaled the payments due on the note and bonds in 1990. TWR does not dispute this contention. It attacks other findings that prohibited it from including principal and interest payments on the 1986 note, which it had assumed from Boyt, in cost of service. Even if its attack had merit, TWR provides no reason why customers should in effect have to assume double payments on the note.
Since TWR recovered its lease payments, which made payments on the note current, it apparently wishes customers to pay the cost of purchasing an already-built canal from Boyt. TWR does not suggest why this would be a reasonable expense.
The Commission did not allow TWR to include payments on the note because it considered the debt arrangement between TRA and the Boyts to be unreasonable, in part because it was an interested or "affiliated" transaction. TWR complains the Commission used ad hoc rulemaking by applying section 13.002 of the Water Code, which defines an affiliate as a person holding indirect control of the voting securities of a utility, as well as those related by blood to such affiliates. While this definition does not directly apply to chapters 11 and 12, the Commission employed its common usage in reaching its determination in Finding of Fact 31 that TWR's rates were unreasonably discriminatory in violation of section 11.038 (b) of the Water Code. This finding is what we must review. The affiliated nature of the debt arrangement was merely one factor in this determination.
The idea of an affiliate is found in many regulatory acts. See Public Utility Regulatory Act, Tex.Rev.Civ.Stat.Ann. art. 144Cc, § 3 (i) (West Supp. 1993); see also Gas Utility Regulatory Act, Tex.Rev.Civ.Stat.Ann. art. 1446e, § 1.03 (8) (West Supp. 1993).
The Commission feared inclusion of note payments in cost of service would pass on the cost of Boyt's acquisition of the Canal from TRA to water customers. The Commission was concerned with the propriety of a debt structure that continues to exist merely for the benefit of private parties, the Boyt family members, who both own the bonds and owe the note. It considered these arrangements to be interested transactions that are disfavored under the Water Code. Substantial evidence, in the form of undisputed facts, supports the Commission's finding that the payments were unreasonable.
TWR claims the Commission may not retroactively apply the affiliated transaction standard to void the 1969 bonds. The Commission did not "void" the bonds using such a standard; it determined that inclusion of the 1986 note payments in 1990 cost of service was unreasonable.
The Commission also found the capitalized cost of the Canal had already been recovered through depreciation allowances before 1969. Substantial evidence in the record supports this finding. The Commission's findings were not arbitrary or capricious, either; TWR asserts no additional grounds supporting this contention.
The testimony of Association's expert witness, Jack Pous, supports the Commission's finding that all invested capital costs had previously been recovered. TWR complains that exhibits Pous used were improperly admitted. TWR does not, however, point out any affirmative evidence of such capital costs and that these costs were reasonably incurred.
TWR contends that the Commission was barred by res judicata from disallowing the payments on the 1986 note by an order it issued in 1971 regarding the value of the TRA bonds and our decision in Trinity River. This decision merely affirmed the trial court's temporary injunction that granted water customers relief according to the terms of the Commisssion's order. We noted the Commission had determined the value of the bonds and agreed that some of this value was recoverable because of the publicly-owned nature of the Canal; however, the Commission rejected the suggestion that the total value must be deemed a reasonable expense. Trinity River, 481 S.W.2d at 197-98. The Commission's 1971 order does not preclude its action in the present case. First, different customers and suppliers are involved. TWR and Boyt are not public entities; hence, the earlier reasoning does not apply. Second, the 1971 order apparently did not include the entire cost of the bonds in cost of service. Third, the 1990 proceeding did not involve, whether it as appropriate to include the value of the bonds in cost of service in 1971; it addresses whether TWR could include payments on the note in 1990. Finally, the debt arrangements the Commission found unreasonable occurred in 1986, long after the first proceeding. The order did not prevent TRA from meeting payments on the bond; it prevented TWR from charging customers twice the amount necessary to maintain a debt arrangement that existed for the sole benefit of the Boyts. We overrule TWR's third, fourth, and fifth points of error.
Burden of Proof
TWR's sixth point of error contends that the Commission erroneously placed the burden of proof upon it in the rate proceedings. It does not cite any record references supporting this contention. Moreover, it apparently complains that it bore the burden of production. It does not explain how this assignment violated a statute or agency rules. We overrule this point.
TWR's seventh and eight points of error state that either the Association failed to meet its burden of proof or, alternatively, TWR carried its burden. The Water Code and Commission rules do not expressly assign the burden of proof for chapter 11 proceedings, and the record does not address the placement of this burden. TWR concedes it must show that particular findings by the Commission violate section 19 (e) of APTRA; the relevant question is whether TWR's rates were reasonable, as required by sections 11.036 and 11.041 of the Water Code. TWR's points six through eight are overruled, as is its thirteenth point, which asserts cumulative error regarding the first six points.
TWR's Expenses
TWR's ninth and eleventh points of error assert that the Commission's decision to disallow various expenses requested by TWR in calculating the final rate was not based on substantial evidence and instead was arbitrary and capricious.
This Court may only overturn an agency decision for lack of substantial evidence, not because it may disagree with the result. League City, 777 S.W.2d at 305. When weighing expert testimony, the Commission may accept or reject part or all of each witness's conclusions. It is the final judge regarding the credibility and validity of such testimony. Southern Union Gas Co. v. Railroad Comm'n, 692 S.W.2d 137, 141-42 (Tex.App.-Austin 1985, writ ref'd n.r.e, ).
Each item disallowed by the Commission was a new expense incurred by TWR that had not previously been included in calculating water rates for the Canal. The record contains substantial evidence to sustain the Commission's findings.
TWR requested the inclusion of a substantial "raw water" fee, alternatively characterized as a "beginning balance," to sustain them during the off-season when no water would be used for irrigation. The record does not indicate that any such fee has ever been charged or that TWR ever paid a fee for raw water flowing from the Trinity River to the Canal. The Commission rejected what amounted to a request for added profits; it had already allowed recovery of both TWR's lease payments to Boyt and an additional "management fee" to further TWR's economic incentive to operate the canal system.
The Commission used a cash flow methodology, which allows recovery of reasonable expenses plus a reasonable amount of profit. Recovery of the lease and management expenses totaled $220,000 in profits. The Commission supported this figure by calculating that if it used a utility basis methodology, which allows a reasonable rate, of return on invested capital plus costs of service, TWR would receive $111,000 in "depreciation recovery" plus a 10% return on $1,071,000, which would total $215,000. See Finding of Fact 36. TWR does not dispute this finding.
The Commission denied TWR's request for $150,000 for expenses incurred in the course of this rate case and awarded $45,000 instead, $20,000 for consultation fees and $25,000 for attorney's fees. Bernard Erwin, the Commission's staff expert, and Jacob Pous, the Association's expert, both testified that the amount requested by TWR was too high. The Commission weighed conflicting expert testimony on this issue before reaching its decision.
TWR's costs of purchasing a trackhoe and new trucks were excluded from the final rates. Evidence as to the need for these items was disputed, and the Commission found these expenses had not been shown to be necessary and reasonable because existing equipment or used purchases could adequately perform the same functions. Furthermore, it found the purchases were imprudently incurred by TWR because it was only leasing the Canal and it was unclear whether TWR would purchase the Canal from Boyt. The testimony of Jack Pous and statements of TWR's president, Paul Glass, supported these findings.
TWR's request for including an employee pay raise not yet implemented also was rejected by the Commission. The Commission thus denied a hypothetical expense not actually incurred; furthermore, the evidence did not prove the reasonableness of such a raise.
At the hearing before the Commission, TWR filed a supplemental request seeking an increase in its previously requested amount for power costs. The Commission rejected this request, citing its tardy filing and the need to normalize historical power costs. The record also contains evidence that actual 1990 power costs were consistent with the amount included in the rates.
TWR's tenth point of error asserts it was denied due process when the Commission refused to hold further hearings and cross-examination of the Commission's staff regarding two conclusions in the Examiner's Report that were modified by the full Commission. The first item involved recouping two costs, flume repairs and rate case expenses, by means of a one-time surcharge in 1990 rather than including them in a future rate base. The second issue involved reducing the fee charged to users of the relift station, from $16 to $5, over the rate charged to users of the main canal. Both modifications came as a result of exceptions to the Examiner's Report the Association filed and the Commission adopted.
These two findings are supported by substantial evidence, including expert testimony favoring the $5 differential. TWR does not dispute the amount assessed for the flume's repair, and we have already upheld the Commission's award of the appropriate amount of litigation and consulting expenses TWR could recover from customers for this rate case. Allocating specific costs to 1990 customers alone prevents TWR from recognizing a possible windfall in future years for one-time expenses.
TWR contends the Commission used a new methodology in calculating these expenses and, therefore, should have held additional hearings before the examiner. In regard to the flume repairs and rate case expenses, the Commission merely deducted these costs from rate base and calculated a surcharge so only 1990 users would bear these one-time charges: this does not constitute a new methodology. When determining the excess amount chargeable to users of the relift station, the Commission was faced with widely varying calculations by the examiner and parties? Both the Commission's staff and the Association eventually urged continuation of the historical differential of $5 which had previously been recognized in water rates. TWR could hardly have been surprised by the Commission's adoption of the same differential that had always been assessed. Again, this analysis does not constitute a new methodology. Further, Pous's calculations provided evidentiary support for the $5 figure.
TWR requested a $52 differential. The Association calculated a $3.81-$5 excess charge. The Examiner's Report suggested $16.18.
The evidentiary support for these two findings distinguishes this case from a decision of this court cited by TWR, Railroad Commission v. Lone Star Gas Co., 611 S.W.2d 908 (Tex.Civ.App. — Austin 1981, writ ref'd n.r.e.). This court held there that the aggrieved party had been denied appropriate procedural safeguards when the Commission had not permitted a party to respond to the use of a methodology unsupported by evidence in the record. Id. at 910.
TWR's argument would require the Commission to hold another hearing before the examiner when it sustains a party's exceptions to the Examiner's Report. The Commission is not bound by this report, and it is the Commission's findings which are subject to review. TWR had a chance to respond to the Association's exceptions in writing and also argued against their adoption in the open hearing before the Commission.
TWR cites section 13 of APTRA as allowing parties an unlimited right to cross-examination and multiple hearings. We do not interpret the statute as mandating such procedures. The expenses at issue had been disputed in the hearing before the examiner and substantial time had passed before the open hearing with the Commission was held. TWR had ample opportunity to present its evidence.
Section, 13 (a) of APTRA provides, "In a contested case, all parties must be afforded an opportunity for hearing after reasonable notice." Section 13 (d) provides, "Opportunity must be afforded all parties to respond and present evidence and argument on all issues involved."
We hold that substantial evidence supports the Commission's findings disallowing the expenses discussed above. We further hold these findings were not arbitrary and capricious, and the Commission did not deny TWR due process. We overrule TWR's ninth, tenth, and eleventh points of error.
TWR's twelfth point asserts the Commission's denial of requested expenses unlawfully deprived TWR of its property. We have found that the evidence does not support TWR's claims these expenses were reasonably incurred. Rates are nonconfiscatory as long as they establish a reasonable return for the regulated party, and the state may exclude "dishonest or obviously wasteful or imprudent expenditures." Missouri ex rel. Southwestern Bell Tel. Co. v. Public Serv. Comm'n, 262 U.S. 276, 289 a. 1, 43 S.Ct. 544, 547 n. 1, 67 L.Ed. 981 (1923) (Brandeis, J., concurring); see also Railroad Comm'n v. Houston Natural Gas Corp., 289 S.W.2d 559, 573 (Tex. 1956). Further, the state has wide latitude in the regulation of surface water. See a. 7, supra. We overrule this point.
DISPOSITION OF CAUSE
Having sustained the Commission's and Association's point of error and overruled TWR's points on cross-appeal, we must decide the disposition of this cause. The district court stated in its conclusions of law that it was reserving the issue of whether post-1990 rates were supported by adequate findings of fact and substantial evidence. Ordinarily, we would remand the cause so the lower court could resolve this unanswered issue. In this particular instance, however, such an action would be fruitless. The district court has affirmed the 1990 rate base, which is identical to future rates, as well as the 1990 surcharge. The evidence which the district found supported the Commission's 1990 rates also supports the Commission's decision that such rates would apply in the future, as long as the parties could adjust these rates if circumstances justifying the 1990 rates changed. We have construed the Commission's order as allowing the parties to freely negotiate for different rates or litigate the issue of reasonable post-1990 rates before the Commission in the future. We need not remand the cause to the district court to review evidence it has already found sufficient.
Accordingly, we reverse that portion of the district court's judgment that reverses the portion of the Commission's order setting rates beyond 1990 and render judgment that this portion of the Commission's order be affirmed. We affirm the remainder of the district court's judgment.
The Court originally rendered judgment and handed down an opinion in this cause on April 7, 1993. At that time the Court was unaware that on March 31, 1993, TWR filed a petition for bankruptcy under chapter 11 of the Bankruptcy Code. In re Trinity Water Reserve, Inc., No. 93-10408-S-11 (Bankr. E.D.Tex.). The April 7th opinion and judgment were nullities because of the existence of the automatic stay in bankruptcy. See 11 U.S.C. § 362 (1988). The bankruptcy court has now lifted the automatic stay to allow this Court to render judgment and hand down its opinion, and we do so today. See Trinity Water Reserve, Inc. v. Devers Canal Rice Producers Ass'n (In re Trinity Water Reserve, Inc., No. 93-10408-S-11) No. A-93-1032 (Bankr. E.D.Tex. June 11, 1993).